08Harley

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case eight

Harley-Davidson, Inc., February2004

Robert M. Grant

You’ve shown us how to be the best. You’ve been leaders in new

technology. You’ve stuck by the basic American values of hard work and

fair play...Most of all, you’ve worked smarter, you’ve worked better, and

you’ve worked together...as you’ve shown again, America is someplace special. We’re on the road to unprecedented prosperity...and we’ll get

there on a Harley.

President Ronald Reagan, speech at Harley-Davidson plant, York,

Pennsylvania, May 6, 1987

The recovery of this company since the 1980s has been truly remarkable.

When you were down in the dumps, people were saying American

industry was finished, that we couldn’t compete in the global economy,

that the next century would belong to other countries and other places.

Today, you’re not just surviving – you’re flourishing, with record sales

and earnings; and one of the best-managed companies in America.

According to management and labor, one of the reasons you’re the best-

managed company in America is that you have a genuine partnershipbetween labor and management, where all employees are valuable and

expected to make good decisions on their own for the benefit of the

common enterprise. And I thank you for setting that example. I wish every

manufacturer in America would model it.

President Bill Clinton, speech at Harley-Davidson plant, York,

Pennsylvania, November 10, 1999

It’s one thing to have people buy your products. It’s another for them to

tattoo your name on their bodies.

As Harley-Davidson’s chairman and CEO, Jeff Bleustein, reviewed the company’s full year

financial results for 2003, he realized that the past financial year would be a difficult act to

follow. The 100th anniversary of Harley-Davidson’s in August 2003 set the stage for a year-

long program of festivities that would attract over a million participants—most of them Harleyowners. Harley shipped 291,147 motorcycles—a 10.4% increase over the previous year—and

sales and profits broke previous records for the 18 th consecutive year. It was a far cry from the

early 1980s, when as head of engineering, Harley was producing less than 40,000 bikes a year

and struggling to remain solvent under a mountain of debt

During the early months of 2004, Bleustein had little opportunity to reminisce about the joys

of Harley’s centennial celebrations. His thoughts were fixed firmly on the future. Wall Street’s

expectations of Harley-Davidson’s profit performance had been fuelled not only by the

company’s remarkable 18-year record-breaking run, but also by the strategic goals set by the

company. On the basis of annual unit sales growth of 7%-9%, Bleustein set a target of 400,000

motorcycles to be sold in 2007. Profit targets were even more ambitious—with continuing

productivity gains and increased sales of parts, accessories, general merchandise and financial

services, Bleustein set the goal of annual earning growth “in the mid-teens.”

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As Bleustein prepared for a strategy review with his top management team, he pondered the

different forces that might throw Harley-Davidson off course. Bleustein’s greatest concerns

related to the world economy. Despite reviving economic prospects in both the US and Japan,

combined federal and trade deficits together with record levels of consumer debt represented acontinuing threat to the stability of the US economy. For any company selling leisure products

priced between $6,500 to $22,000, any slowdown in US consumer spending represented a

significant. Competition was not a primary concern. Harley had demonstrated its ability to hold

its own against similarly-styled V-twins produced by rivals (including the big Japanese

producers Honda, Yamaha, Kawasaki, and Suzuki). They might be able to replicate the look of

the Harley Hog, but none could replicate the “Harley Experience.” But what if motorcycle riders

began to look for a different type of experience? H-D’s share of the heavyweight market fell

slightly in 2000. What if the appeal of the heavyweight cruiser waned and buyers became

attracted to the European-styled sports models produced by Ducati, Aprilia, Triumph, and

BMW, or the high-performance Japanese machines? The disappointing sales of Harley’s Buell

range of sports motorcycles suggested that Harley’s potential to compete in other segments of

the motorcycle industry was limited. Longer term, Bleustein was concerned over the

demographic trends. Harley’s popularity was closely associated with the baby-boom generation.As this generation aged, so did Harley’s customers. How would Harley appeal to younger

generations? Some of the threats were internal. Harley’s success had been built upon a drive for

success and a collaborative work culture that had been forged during the difficult circumstances

of the 1980s, as Harley went from strength to strength and expanded its employee base, would

complacency set in?

■ THE HISTORY OF HARLEY-DAVIDSON ■

1903–1981: From Birth to Maturity

Harley-Davidson, Inc. was founded in 1903 by William Harley and brothers William Davidson,Arthur Davidson, and Walter Davidson. Harley’s 1903 model was made in the Davidson family

shed and had a three-horsepower engine. In 1909 Harley introduced its first two-cylinder, V-

twin engine, featuring the deep, rumbling sound for which Harley motorcycles. During the

1920s the US motorcycle consolidated. In 1910 there were some 150 US motorcycle producers,

by 1929, Indian, Excelsior, and Harley accounted for the majority of US motorcycle sales. The

Great Depression killed Excelsior, and Indian closed in 1953, leaving Harley the sole American

manufacturer of motorcycles. Table 8.1 shows H-D’s production over the century.

[Table 8.1 about here]

The post-war era was one of opportunity lost for Harley-Davidson. Growing affluence and therise of youth culture created a growing demand for motorcycles. However, this was satisfied

primarily by imports. By 1959, Harley was still market leader, but British imports amounted to

about 30,000 bikes a year with BSA, Triumph, and Norton taking 49 % of the US market. 1 In

1959, Honda entered the US market. The result was the rebirth of motorcycling in the US.

Although H-D initially benefited from the rapid expansion of the market, soon Honda and the

other Japanese producers moved upmarket into the heavyweight sector. In 1969 Honda

introduced its four-cylinder CB750, a huge technical advance on anything produced by H-D or

the British. In the same year, H-D was acquired by AMF, which proceeded to expand

production capacity with the building of the York, Pennsylvania assembly plant. Boosting

capacity to 75,000 units annually had disastrous consequences for product quality. A company

audit in the mid-1970s revealed that more than half the cycles coming off the line were missing

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parts.2 By the end of the 1970s, Honda had replaced H-D as market leader in heavyweight

motorcycles in the US.

1981–2003: Rebirth

In 1981 H-D’s senior managers, led by Vaughn Beals, organized a leveraged buyout. Harley

emerged as an independent, privately owned company, but heavily laden with debt. The buyout

coincided with a severe recession and soaring interest rates—especially troublesome for a

highly leveraged business Registrations of heavyweight motorcycles fell during 1981 and 1982

while Harley’s own sales plummeted. By 1982 its sales of bikes were down by more than a third

from 1979. During 1981 and 1982, Harley-Davidson lost a total of $60 million. Redundancies

came thick and fast: 30 percent of office staff was dismissed with similar cutbacks among

hourly workers.

While battling to stay solvent, the new management team also devoted themselves to

rebuilding production methods and working practices in order to cut costs and improve quality.

Managers visited several Japanese automobile plants and carefully studied Toyota’s just-in-time( JIT) system. Less than four months after the buyout, Harley management began a pilot JIT

inventory and production-scheduling program called “MAN” (Materials As Needed) in its

Milwaukee engine plant. The objective was to reduce inventories and costs and improve quality

control. Within a year, all H-D’s manufacturing operations were being converted to JIT:

components and sub-assemblies were “pulled” through the production system in response to

final demand.

The revolution in production methods and new spirit of cooperation between workers and

management—plus help from the US government in the form of a temporary 49% tariff on

imports of Japanese heavyweight motorcycles—soon fed through into both the top line and

bottom line of Harley’s income statement. To fuel the continuing development of the company,

Harley-Davidson went public in 1986. Between 1986 and 1990, Harley’s share of the

heavyweight market expanded steadily from about 30 percent to over 60 percent, with demand

outstripping production. During this time, management improved the quality and reliability of its

product, and began to explore growth opportunities in retail clothing and international sales.

The 1990s saw year-on-year uninterrupted growth in the heavyweight motorcycle market and

continued increase in H-D’s market share. The company’s biggest challenge continued to be

balancing production capacity with surging demand for its products. In order to overcome this

constraint, in 1996, the company announced the ambitious Plan 2003. Plan 2003 was a vision to

dramatically increase production capacity over the eight years preceding the company’s 100th

anniversary. New production plants in Kansas City and York, Pennsylvania, the launching of

several new models, and international expansion resulting in sales approaching 300,000 in

2003—an eightfold increase on 1983.

■ THE HEAVYWEIGHT MOTORCYCLE MARKET ■

The heavyweight segment (over 650cc) was the most rapidly growing part of the world

motorcycle market between 1990 and early years of the new century, with the US accounting for

a major part of this growth. Sales of heavyweight motorcycles in the major markets of the world

increased from 322,400 units in 1991 to 877,400 in 20030. North America was the largest

market for big bikes, representing 56 percent of the sales in the major world markets. Between

1999 and 2003, sales of heavyweight motorcycles increased by 14% annually in North America,

compared to about 2% growth in Europe ad Asia.

In North America, Harley increased its market share rapidly during the 1980s, between 1993

and 2003, its market share has been relatively stable, varying between 46.2% and 48.2%.

Elsewhere, Harley has been unable to replicate the market dominance it achieved within its

home market. During 2000-2003, Harley achieved the remarkable feat of becoming

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heavyweight market leader in Japan, pushing Honda into second place. However, in Europe,

Harley has lagged behind its Japanese competitors and BMW (see tables 8.2 and 8.3).

[Tables 8.2 and 8.3 about here]

The heavyweight motorcycle market comprises three segments:

• Cruiser motorcycles are “big, noisy, low riding, unapologetically macho cycles,”3

typically with V-twin engines and an upright riding position. Their design reflects the

dominance of styling over either comfort or speed. For the urban males (and some

females) in Los Angeles, New York, Paris, and Tokyo, the cruiser motorcycle is

practical transportation in congested metropolises, but is primarily a statement of style.

The cruiser segment was practically created by Harley and is the most prevalent in the

US, representing over half of the heavyweight market. Most of Harley’s competitors in

this segment have imitated the main feature of traditional Harley design: V-twin

engines (many with engine displacements that exceed those of small family cars), low-

torque power, an upright riding position, and a low center of gravity.

• Touring bikes include cruisers specially equipped for longer-distance riding and bikes

specially designed for comfort over long distance (including the Honda Goldwing andthe bigger BMWs). These tourers feature luxuries such as audio systems, two-way

intercoms, and heaters. While Harley leads this segment on the basis of style and

image, Honda and BMW have engineered their motorcycles for greater smoothness

and comfort over long distances through the use of multi-cylinder, shaft-drive engines,

and advanced suspension systems.

• Performance models are based upon racing bikes. These are high-technology, high-

revving engines with a heavy emphasis on speed, acceleration, and race-track styling;

minimal concessions are provided to rider comfort. The segment is the most important

in the European and the Asian/Pacific market, representing 62 percent and 66 percent

of total heavyweight bike sales respectively. The segment is dominated by Japanese

motorcycle companies, with a significant representation of European specialists such

as Ducati, and Triumph. Harley entered the performance segment in 1993 through its

involvement in the formation of Buell Motorcycles, a company it fully acquired in

1998.

It is worth noting that the conventional segmentation into lightweight, middleweight, and

heavyweight does not clearly define Harley-Davidson’s market. Harley’s strength lies not in the

heavyweight motorcycle market, but in just one part of this: the super-heavyweight segment,

comprising bikes with cylinder displacement of more than 850cc. The only motorcycle that

Harley-Davidson produces with an engine size of less than 850cc range is the Buell Blast.

■ HARLEY-DAVIDSON IN 2001 ■

The Brand

The Harley-Davidson image and the loyalty it engenders among its customers are its greatest

assets. Harley-Davidson is one of the archetypes of American style. The famed spread eagle

signifies not just the brand of one of the world’s oldest motorcycle companies, but an entire

lifestyle with which it is associated. Harley has been described as “the ultimate biker status

symbol...a quasi religion, an institution, a way of life.”4 Together with a few other companies—

Walt Disney and Levi Strauss—Harley has a unique relationship with American culture. The

values that Harley represents – individuality, freedom, and adventure – can be traced back to the

cowboy and frontiersman of yesteryear, and before that to the motives that brought people to

America in the first place. As the sole surviving American motorcycle company from the

pioneering days of the industry, Harley-Davidson represents a tradition of US engineering and

manufacturing.

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This appeal of the Harley brand has been central, not just to the company’s marketing, but to

its strategy as a whole. The central thrust of the strategy has been reinforcing and extending the

relationship between the company and its consumers. Harley-Davidson has long recognized that

it is not selling motorcycles, it is selling the Harley experience. Prominent in annual reports of recent years have been pictures and prose depicting the Harley Experience:

A chill sweeps though your body, created by a spontaneous outburst of pure, unadulterated joy. You

are surrounded by people from all walks of life and every corner of the globe. They are complete

strangers, but you know them like your own family. They were drawn to this place by the same

passion – the same dream. And they came here on the same machine. This is one place you can truly

be yourself. Because you don’t just fit in. You belong.5

If the appeal of the Harley motorcycle is the image it conveys and the lifestyle it represents, then

the company must ensure that the experience matches the image. To increase H-D’s

involvement in its consumers’ riding experience it formed the Harley Owners’ Group in 1983.

Through HOG, the company became involved in organizing social and charity events, and

employees, from the CEO down, were encouraged to take an active role in HOG activities.

HOG’s website describes the kind of emotion and atmosphere that the company is trying to

deliver to customers through its HOG organization: “the feeling of being out there on a Harley-

Davidson motorcycle links us like no other experience can. It’s made HOG like no other

organization in the world...The atmosphere is more family reunion than organized meeting.”6

The continued growth of the Harley Owners’ Group throughout the 1990s was particularly

important encouraging repurchase and upgrading by Harley owners. During 1999-2003, about

one half of all sales were to customers who had owned a Harley previously, while about 20

percent were first-time motorcycle buyers.

During he 1980s and 1990s, the demographic and socioeconomic profile of Harley

customers shifted substantially. Traditionally, Harley owners were blue-collar men in their 20s

and 30s. By 1999, the median income of a Harley owner was $73,800, up from $38,400 in

1987. The average age grew to 44.6 in 1999, up from 34.7 in 1987. Also, by 1999, 9 percent of Harley consumers were female, up from 2 percent in 1987. Harley-Davidson’s ability to capture

the imagination—and spending power—of the baby-boomers was critical to its financial

success. As the prices of Harley principal motorcycle models rose towards the $20,000 mark,

middle-aged professionals became the most attractive target demographic for the company.

The Products

Broadening Harley’s market appeal had major implication for product policy and design. The

Harley image is linked closely to its big, throaty, V-twins. Ever since its disastrous foray into

small bikes during the AMF years, Harley had recognized that its competitive advantage lay

with super-heavyweight bikes. Here it stuck resolutely to the classic styling that characterized

Harleys since its early years. At the heart of the H-D motorcycle is the air-cooled V-twin enginethat was Harley’s distinctive feature since 1909. Harley’s frames, handlebars, fuel tanks, and

seats also reflect traditional designs.

Harley’s commitment to traditional design features may be seen as making a virtue out of

necessity. Its smaller size and scale compared to its competitors limited its ability to invest in

technology and new products. As a result, Harley lags far behind its competitors in the

application of automotive technologies: its motorcycles not only look old-style, much of the

technology is old-style. When H-D introduced its new Twin Cam 88 engine in 1998, Motorcycle

magazine reported:

Honda comes out with an average of two new (or reworked) motors every year. The other Japanese

manufacturers are good for about one. Count on Ducati and BMW to do something every few years.

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That leaves only Moto Guzzi and Harley. So it goes to say that when either of these two old farts

gets off the pot, they really raise a stink, so to speak.

The Twin Cam 88 is Harley’s first new engine since the Evolution Sportster motor of 1986, and

their first new Big Twin motor since the original Evolution, released in 1984. Fifteen years between

engines is not really that long a span for Harley. The Evo’s predecessor, the Shovelhead lasted 19

years (with a revision after five), and the Panhead lasted nearly as long.7

Yet, despite the fanfare, Harley’s Twin Cam 88 engine was hardly innovative. It was a 1,450cc

traditional V-twin with push rods and was air-cooled, a decade after Japanese manufacturers had

introduced multi-valve, liquid-cooled, overhead camshaft engines. BMW’s R1200C cruiser

model (launched in 1997 with a starring role in the James Bond movie Tomorrow Never Dies)

featured shaft drive; a multi-valve, fuel-injected engine; triple-disc, anti-lock brakes; and “road-

hugging” cornering from its advanced suspension system. While BMW and the Japanese

manufacturers apply the latest automotive technology to their new models, Harley has

concentrated upon incremental refinements to its engines, frames, and gearboxes aimed at

improving power delivery, reliability, increasing braking power, and reducing vibration. This

continual upgrading of its technology and its quality has been an essential requirement of Harleyshifting its customer base from blue-collar enthusiasts to middle-aged professionals who lack the

time, inclination, and expertise to tune and maintain their bikes and need “luxuries” such as

electric starters and vibration control.

Harley has sought out alliances as a means of accessing advanced automotive technologies.

In 1997, it established a joint venture with Porsche AG to source and assemble motorcycle

components and to access Porsche’s expertise in engine emission compliance. For its VF1000

Superbike race team, H-D collaborated with Cosworth Racing, Ford, and Gemini Racing

Technologies.

In recent years, Harley-Davidson made a greater commitment to innovation and more radical

product design. The V-Rod introduced in October 2001 featured innovative styling and an all-

new liquid-cooled engine. The Buell range also offered, Harley engineers opportunity to be

more technically innovative. The 2002 Buell Firebolt featured a new engine, an all-aluminum

frame, and the “naked” styling pioneered by Ducati.Reconciling product differentiation with scale economies was a continuing challenge for

Harley. Personalization is an essential requirement for the Harley owner. Hence, Harley must

offer a wide model range, and a broad set of options regarding paint, accessories, and trim. At

the same time, economies in engineering, manufacturing, and purchasing require standardizing

components across the model range. The result is that H-D has continually broadened its range

of models (its 2004 lineup offered over 30 separate models) and for each model offers a range of

options. At the same time, it bases this range of product offerings upon three engine types

(Evolution XL, Twin Cam 88, and Revolution), four basic frames, four styles of gas tank, and

so on.

The Harley product line also covers a wide price range. The Sportster model is intended as an

entry level bike, priced at a mere $6,495, less than one third of the price of the Ultra Classic

Electra Glide (with two-tone paint at $20,405 (see table 8.4).


Buell

H-D’s involvement in Buell represented an attempt to broaden its customer base and its market

appeal—especially in overseas. In 1997, H-D set up a working group to explore ways of

attracting new, younger motorcycle riders. Market research found that many potential riders

were put off by motorcycles being “hard to learn,” and big cruisers and touring bikes viewed as

“intimidating” or “something an old guy would ride.” Founded by ex-Harley engineer Erik

Buell in the 1980s, Buell Motor Company developed bikes that synthesized the comfort and

style of a Harley cruiser with the high-performance attributes of a sports bike. Harley acquired

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complete ownership of Buell in 1998.. Buell bikes use Harley engines and other components,

but mount them on a lighter, stiffer frame. The lighter weight and superior handling and

acceleration of Buell models were seen as appealing to younger motorcyclists and also to the

European market, where customers put greater value on sporty performance and a cheaper pricetag. In the US, the typical Buell customer was seven years younger that that of Harley buyers

and the price tag about $10,000 compared to an average Harley price of $16,000. As with

Harley, Buell has attempted to foster close relations with its customers. The Buell Riders

Adventure Group (BRAG) was modeled after HOG.

Buell’s production rose from 4,462 units in 1997 to 10,943 in 2002(see table 8.5), boosted by

new models. The Buell Blast, an entirely new model with a 490cc single cylinder engine and a

price tag of $4,595. With the Buell Firebolt, Harley moved even more direct competition with

Japanese and European producers of high-performance, sports bikes. Despite, heavy

investments in developing and launching new products, Buell’s unit sales fell by about 9% in

2003 due to a fall-off in sales of the Buell Blast.


Distribution

Upgrading H-D’s distribution network was a key aspect of Harley’s development strategy

during the 1980s and 1990s. Many of Harley’s 620 US dealerships were poorly managed shops,

operated by enthusiasts, with erratic opening hours, a poor stock of bikes and spares, and

indifferent customer service. If Harley was in the business of selling a lifestyle and an

experience, then dealers were the primary point of contact between the company and its

customers. Moreover, if Harley’s future lay with professionals who possessed the disposal

income to lay out $17,000 on a motorcycle for occasional leisure rides – then the retail

environment had to be appropriate to the requirements of this customer group.

Harley’s dealer development program increased support for dealers while imposing higher

standards of pre- and after-sales service, and requiring better dealer facilities. The dealers were

obliged to carry a full line of Harley replacement parts and accessories, and to perform service

on Harley bikes. Training programs helped dealers to meet the higher service requirements, and

encouraged them to recognize and meet the needs of the professional, middle-class clientele that

H-D was now courting. Harley had taken the lead over other motorcycle companies in

introducing new services to customers. These included test ride facilities, rider instruction

classes, motorcycle rental, assistance for owners in customizing their bikes through dealer –

based “design centers” and “chrome consultants,” and the supply of insurance policies. 81% of

Harley dealerships in the US were exclusive—a higher percentage than for any other motorcycle

manufacturer.

Given the central role of dealers in the relationship between Harley-Davidson and its

customers, dealer relations continued to be a strategic priority for Harley. Its Retail

Environments Group provides retail planning advice with a goal of bringing the same retail

experience to customers everywhere in the world. Harley-Davidson University was establishedto “enhance dealer competencies in every area from customer satisfaction to inventory

management, service proficiency, and front-line sales. Harley’s relationships with its dealers are

particularly important for the continued growth of Harley’s sales of financial services, parts and

accessories, and general merchandise. Harley believed that its dealer strategy was an important

explanation for the fact that, despite a fivefold increase in production capacity since the

beginning of the 1990s, demand for Harley motorcycles continued to outstrip supply. Every

motorcycle that Harley made in 2003 had already been sold long before it came off the

production line. For many models, would-be buyers must join a waiting list. One result is that

used bikes frequently sell at higher prices than new bikes. More generally, the rate of price

depreciation of used Harleys is very low.

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Other Products

Sales of parts, accessories, and “general merchandise” (clothing and collectibles) represented

20% of total revenue in 2000 – much higher than for any other motorcycle company (see table8.6). Clothing sales include not just traditional riding apparel, but a wide range of men’s,

women’s, and children’s leisure apparel.

Only a small proportion of the clothing, collectibles, and other products bearing the Harley-

Davidson trademark are sold through the H-D dealership network. Most of the “general

merchandising” business represented licensing of the H-D name and trademarks to third-party

manufacturers. For example, Nice Man Merchandising supplied Harley-Davidson children’s

clothes; a giftware company supplied Harley holiday bulb ornaments, music boxes, and a Road

King pewter motorcycle replica; L’Oréal offered a line of Harley-Davidson cologne; Harley-

Davidson Cafés operated in Manhattan and Las Vegas.

Harley-Davidson Financial Services was established to supply credit, insurance, and

extended warranties to H-D dealers and customers. Between 2000 and 2003 it was Harley’s

most rapidly growing source of profits accounting for 15% of total operating income in 2003.


International Expansion

A key part of Harley-Davidson’s growth strategy is expanding its sales outside of the US. “A

few years ago,” says Harley CEO Bleustein, “our prime focus was the domestic market, and the

rest was gravy. That view had to change. If our growth is to continue, Europe will have to play a

significant part.” A critical issue for international marketing is the extent to which the products

and the Harley image need to be adjusted to meet the needs of overseas markets. Harley’s image

is rooted in American culture, and thus seems central to their appeal to European and Asian

customers. “The US and Harley are tied together,” says Hugo Wilson of Britain’s Bike

magazine, “the guy who’s into Harleys here is also the guy who owns cowboy boots. You get a

Harley and you’re buying into the US mystique.”8 At the same time, the composition of demand

and the customer profile is different in overseas markets.

Europe is the focal point of H-D’s overseas ambitions, simply because it is the second largest

heavyweight motorcycle market in the world. Europe is also a huge challenge for H-D. Unlike

in the US, H-D has never had a major position in Europe and it must fight to take market share

from the established leaders in the heavy bike segment: BMW, Honda, Kawasaki, and Yamaha.

The European motorcycle market differs significantly from the American market in that 70

percent of the heavy motorcycle market is for performance bikes (such as the popular Japanese

high-power, racing-style bikes), while the touring/cruiser bikes such as those Harley makes

account for only 30 percent. European buyers tend to be knowledgeable and highly style

conscious. Also, European roads and riding style are different from the US. As a result, Harley

has modified some of its models to better meet the needs and tastes of its European customers.

The US Sportster, for example, has a straight handlebar instead of curled buckhorns and a newsuspension system to improve cornering. The name has also changed to the “Custom 53.” The

Harley Softail also received a new look, becoming the “Night Train.” As in the US, HOG plays

a critical role in building brand image and customer loyalty. Harley’s anniversary celebration in

Barcelona on June 2003 attracted some 150,000 people including Harley owners from all over

Europe. Central to Harley’s international strategy is building its dealer network. Between 2000

and 2003, Haley expanded its dealership network in Europe and Asia, acquired several of

distributors, and built a new European headquarters in Oxford, England. At the beginning of

2004, Harley had 383 dealers in Europe (including the Middle East and Africa), 221 in Asia,

and 30 in Latin America. In the US there were 648 Harley dealerships and in Canada 75.

Operations

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Since emerging as an independent company in 1981, Harley-Davidson has been continuously

upgrading its manufacturing operations. This has involved continuous investment in plant and

equipment, both to introduce advanced process technologies and to expand capacity. Even more

important has been the development of manufacturing capabilities through total qualitymanagement, just-in-time scheduling, CAD/CAM, and the devolution of responsibility and

decision making to the shopfloor.

At the beginning of 2004, Harley’s engine and component manufacturing was clustered

around its Milwaukee headquarters, with assembly concentrated at York, Pennsylvania and

Kansas City, Missouri. (see table 8.7.)


Despite the enormous strides in implementing state-of-the-art manufacturing methods and

expanding production to offset the problems of small-scale production, Harley’s low production

volumes relative to Honda and the other Japanese manufacturers imposed significant cost

disadvantages. A key factor in this volume-related cost disadvantage was in the purchasing

components. Bought-in, customized components account for a large proportion of

manufacturing costs and H-D does not possess the same buying power as Honda or even some

of the smaller manufacturers. Thus, despite its smaller volume of motorcycle production, BMWis able to leverage the buying power of its automobile business.

To meet this challenge, H-D placed purchasing managers at senior levels within its

management structure and fostered close relations with its key suppliers. In 1992, Harley

extended its program of quality improvement to encompass its suppliers. It established a

supplier advisory council (SAC) to expose supplier executives to the best practices of other

suppliers in the Harley network.10 Harley’s director of purchasing, Garry Berryman,

commented: “Through the SAC, we’re able to take some of the entrepreneurial aspects of our

smaller, privately held suppliers and inject that enthusiasm, spirit, and energy into those that

may be larger, publicly held companies. In this way, the SAC serves not only to improve

purchasing efficiency, but also provides a forum to share information, ideas, and strategy.” The

SAC, says Berryman, is a way “to leverage the successes that occur in one area across the

broader organization.”11 Suppliers were also included in Harley’s new product development

process. Leroy Zimdars, Harley’s director of purchasing development, noted: “We want

suppliers to be deeply involved, at an early stage, in new product development. We’ll use the

SAC as a sounding board for how the supply base accepts the new structure, and we can react to

it.”12

People and Management Processes

A key feature of H-D’s turnaround during the 1980s was the quest for a new relationship

between management and employees. Following the management buyout, H-D’s new

management team systematically rethought management–employee relationships, employee

responsibilities, and organizational structure. The result was a transformation in employee

commitment and job satisfaction. “What other company has employees who tattoo the companyname on their bodies? Or offers not just a job but a lifestyle?” observed an assembly-line worker

at Harley’s Milwaukee plant. Harley has a no lay-off policy, 12 weeks of paid maternity leave,

and unlimited sick days for staffers.

The process of management innovation is a continuing one. When Harley’s new Northland

Plant went on-line in Kansas City in January 1998, the plant’s management structure and

working methods reflected the company’s desire to make further advances in employee

commitment and self-management. “I’m not aware of anybody anywhere doing anything that

emulates this,” said plant chief Karl Eberle.13 In contrast to the traditional layout of Harley’s

other plants, the Northland Plant does not have a management space that oversees floor

production from a glassed-in office upstairs. Instead, the plant manager and other administrators

work in a “bullpen area” on the floor and in the center of the 330,000 square-foot building.

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manufacturers, the more it was engaged in a brutally competitive market. By broadening its

market, Harley came into closer competition with its Japanese and European rivals – Buell’s

mission was to compete directly with them. And the more successful was the Harley brand, the

more it could expect its bigger competitors to target its own market niche. Honda, Suzuki,Yamaha, and Kawasaki had long been offering V-twin cruisers styled closely along the lines of

the classic Harleys – but at lower prices, with more advanced technologies, and in some

dimensions, superior performance. In competing against H-D, the Japanese manufacturers’ key

advantage was their sales volume. H-D’s single-segment focus and concentration on the US

market meant that it produced a much smaller volume of bikes than any of the Japanese

producers. The most striking comparison was between H-D and Honda: H-D’s total of 291,000

bikes in 2003 was dwarfed by Honda’s 5 million bikes in the same year. These volume

differences have important implications for Harley’s ability to access economies of scale and for

its vulnerability to factors influencing its dominant market—the US market for heavyweight

motorcycles.

In addition, Haley lacked the diversification of its rivals. Honda, BMW, and Suzuki are

important producers of automobiles and more than one-third of Yamaha’s turnover comes from

boats and snowmobiles. These companies could benefit from sharing technology, engineeringcapabilities, and marketing and distribution know-how between their automobile and motorcycle

divisions. In addition, sheer size conferred greater bargaining power with suppliers.

Also, Harley was facing competition from other specialists producing retro-styled cruiser

bikes. In recent years Excelsior, Polaris (Victory) and Big Dog had all entered Harley’s markets

during the late 1990s, but with only limited success to date.

Appendix 2 gives profiles of several competitors of Harley, while table 8.4 shows price

comparisons.

■ MEETING THE CHALLENGES OF TOMORROW ■

As Bleustein reviewed Harley’s Strategic Plan for Sustainable Growth which was t the roadmapfor the company’s continued development for the remainder of the decade, he was satisfied that

the plans for capital expenditure, investments in new product development, and proposals for

strengthening Harley-Davidson’s brand represented a cautious and well-judged approach to

Harley’s future development that was firmly grounded in the experience accumulated over the

previous two decades. In terms of a systematic approach to developing Harley’s differentiation

advantage, while working strenuously to contain costs, Bleustein saw the company as having all

its bases covered. What concerned him were the possible potholes that the company might

encounter on the road forward. In Donald Rumsfelt’s words, what were the “unknown

unknowns” that might throw Harley-Davidson off course?

In thinking though Harley’s possible vulnerabilities, he grappled with some of the

implications of a strategy that emphasized selling an experience rather than selling a product.

The problem of selling experiences was that they were dependent upon the social and

psychological identity and aspirations of the customer. Were the values embodied in the "HarleyExperience" universal and enduring or were they the result of a cultural, social demographic

phenomena that were particular to the United States during the past two decades? To date, the

market had absorbed Harley’s additional production with no signs of indigestion. Would an

additional 100,000 motorcycles per year be absorbed just as willingly, or would the very

ubiquity of Harley bikes undermine the individuality that was closely linked to “The

Experience”? While H-D’s marketing emphasized the experience of motorcycling, Bleustein

was acutely aware that purchasing a Harley was, for many of its owners, more a statement of

style than a desire to ride the great American wilderness.

With the baby boomers graduating from motorcycles to retirement homes, the US market for

heavyweight motorcycles looked vulnerable. In a declining market, not only would the intensity

of competition increase, but Harley’s ability to maintain its market share would depend

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increasingly on its ability to recruit new and younger customers. To date, Harley had had little

success in selling to younger markets. Similar, comments could be made about Harley’s other

potential growth market—overseas. For all its efforts and building distribution and marketing

efforts outside the US, Harley’s overseas performance had been patchy: very successful inJapan, but only modest sales growth in Europe.

APPENDIX 1

Harley-Davidson, Summary of Financial Statements,1994–8

APPENDIX 2

Harley-Davidson’s Competitors

■ HONDA ■

Honda Motor Co. has been manufacturing motorcycles since 1947 as a second tier player in an expansion

cycle of the Japanese motorcycle industry given the need for cheap transportation means after World War

II. The company entered the US market in 1959, first with cheaper, lightweight bikes, before quickly

moving into the higher-priced segments such as performance and touring bikes. The company leveraged

the experience obtained in its domestic market in advertising and distribution in its entrance to the US.

Given its initial dependency on an exclusive dealership network in Japan, it decided to go directly to

retailers. Moreover, it invested heavily in advertising directly to consumers, which gave Honda excellent

results in its domestic market.28 It achieved an extraordinary growth in the US market, increasing sales

from $500 million in 1960 to $77 million in 1965 and shared with Yamaha and Suzuki 85 percent of the

US market by 1966.29 Honda has been the world’s largest motorcycle manufacturer since 1959, with

5,190,000 bikes produced in 2000 (vs. 54,000 made by BMW and 204,592 made by Harley).30 The

company holds 26.5 percent of the total US motorcycle market, and enjoys the number one market share

position. The firm’s motorcycle sales have grown by 20 percent in 1999, reached 296,479 American Honda

units sold in the US in 1999 (20 percent increase) compared to 158,817 sold by Harley, and 174,376

motorcycles in year 2000 (a record 34.5 percent increase) in an industry in which sales grew 27.3 percent.

Honda Motor’s worldwide sales reached 5.16 million motorcycles in year 2000 and the company has

the objective of achieving the 7 million mark by March 2004.31 Worldwide sales have increased by

approximately 20 percent and the decline in unit sales in Japan and Europe has been more than offset by

the volume growth in Asian countries (specially India, Indonesia, and Thailand), as well as in North

America.32 Honda is the Japanese car and motorcycle manufacturer most dependent on the US market.

Above 50 percent of its consolidated revenues in year 1999 derived from its US operations.

Honda is a superior engineering company and its motorcycles have traditionally been “on the leading

edge of technology.”33 “Honda is, above all, an engine company,”34 and the world’s leader in four-stroke

technology. The firm was capable of transferring these capabilities into a broad product offering

(motorcycle, automobiles, and power products). Its performance bikes have dominated motorcycle racing

for decades and are associated with the world’s greatest racers. The innovations achieved from racing were

adapted to its motorcycle products. In the early 1970s the company also had great success with street and

touring bikes with the introduction of the style-setting CB750K0 in 1969 and the Goldwing, the world’s

first long-distance touring bike, in 1975.35 Honda’s capabilities of product innovation together with heavy

investment in R&D, economies of scale, and efficient distribution enable it to develop technical superiority

at a lower price. The firm has also committed the largest advertising budget in the industry and established,

from early on, the largest dealership network in the US.36 Its scale advantage together with high growth

rates resulted in superior productivity that was translated into lower prices. Honda has experienced steep

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learning curves of 75–87 percent that enable the company to achieve real price reductions of around 50

percent or more over time.37

■ YAMAHA ■

Yamaha Motor Company was established in 1955. Its first product was a 125cc two-stroke motorcycle.

By 2003 it was producing 2.6 million motorcycles a year—with scooters forming a major portion of its

sales. Motorcycles made up about 55% of sales revenue, Yamaha other products were watercraft, power

products (including all-terrain vehicles and marine engines), and swimming pools. Yamaha’s biggest

market was south-east Asia where it owned motorcycle manufacturing plants in China, Indonesia,

Vietnam, Thailand, and India. Yamaha has a log history of designing and manufacturing V-twin

heavyweight cruisers. It’s Virago 750cc V-twin was introduced into the US in 1981 and was a leading

seller for almost 20 years. Model. The Yamaha Road Star is designed to compete directly with Harley’s

retro-look cruisers. The Road Star 1600 with its 1600cc V-twin engine has the biggest engine in this

category of motorcycles. Yamaha is known for its advanced motorcycle technologies. It introduced the

first 5-valves per cylinder motorcycle engine, the first 4-stroke mass-production motocross bike, and theYamaha Induction Control System for increased fuel efficiency.

■EXCELSIOR HENDERSON MOTORCYCLE MANUFACTURINGCOMPANY (EXCELSIOR) ■

In the early 1990s two brothers, Dave and Dan Hanlon, bought the trademarks to a pre-war motorcycle

manufacturer, Excelsior and Henderson. Formed in 1876, Excelsior Supply Co. was one of the top three

US motorcycle manufacturers at the turn of the century along with Indian Motorcycle and Harley-

Davidson. Its motorcycle was the first to break the 100 mph barrier. The company was liquidated during

the Depression in 1931 and ever since the Hanlon brothers have been trying to resuscitate its image by

manufacturing, marketing, and selling cruisers and touring bikes under the Excelsior brand name evoking

“an authentic American motorcycling heritage and lifestyle”.16

The Hanlons have developed a prototype of a retro-style cruiser with the latest technology andaccessories, such as electronic fuel injection, a four-valve cylinder, and an overhead cam engine, named

The Super X, to be sold at a sticker price between $17,000 and $20,000.

With no revenue generation and with reported losses of $5.9 million and $2.5 million in 1997 and 1996

respectively, the firm went public in 1997, raising $28 million in proceeds. These IPO funds, together with

a $1.7 million State of Minnesota equipment financing bond, financed the construction of the company’s

new administrative and manufacturing facility in Belle Plain, Minnesota. Production started in 1998 (with

5,500 units of backorders), to be stopped in late 1999 when the firm filed Chapter 11 bankruptcy

protection.

E. H. Partners, Inc. acquired the firm from Chapter 11 in September 2000 (the firm’s public

stockholders and founders did not retain an equity interest) and announced a reorganization plan that

consisted in its restructuring, no manufacturing during 2001, and resuming motorcycle production for the

2002 year with the complete re-launch of the firm. Moreover, its dealership networks, owing to lack of

support from the firm, have lost huge amounts in warranty repairs not reimbursed and the current

availability of parts is almost terminated.

■ POLARIS ■

A leading snowmobile (world’s largest manufacturer), ATV (all-terrain vehicle), and personal watercraft

maker since the 1950s, and currently one of the largest US manufacturers, the firm has past success with

taking on Japanese competitors. In the early 1990s, Polaris entered the personal watercraft and the ATV

markets, both dominated by Japanese competitors – Kawasaki and Honda respectively. Since then, Polaris

has gained the number two market share in ATV sales (37 percent of revenue), and challenged Kawasaki’s

dominance of the personal watercraft market by gaining significant market share and brand recognition.

Polaris launched a new cruiser, the Polaris Victory, in the spring of 1998 with a retro look and new

technology, and targeting the high-margin, high-growth cruiser market dominated by Harley. High-tech

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engineering has “eliminated some of the noise and vibration associated with a Harley.”17 The Victory was

positioned to compete with technologically advanced Honda, Suzuki, Kawasaki, and Yamaha cruisers on a

price level above Japanese models. Polaris “competes with Japanese on price, quality, and technology.”

The company stresses its “made in the USA” appeal to attract customers away from these foreign

competitors and is counting on its previous experience making personal watercraft and ATVs to beat the

competition. According to CEO Wendel, “We met these guys in snowmobiles and ATVs and we beat their

asses off.”18

Polaris is a very efficient and aggressive company with high-tech manufacturing capabilities and a

combined distribution network of 2,000 dealers for all of its products (Victory Motorcycles are available at

300 dealers in the US, Canada and the UK). It reported a twelfth consecutive year of record net income.

Net income for 2000 totaled $82.8 million (8 percent increase) and sales totaled a record $1,425.7 million

(7 percent increase).

The firm entered the motorcycle industry leveraging its resources and capabilities: large distribution

network, cross-selling opportunities, engineering and manufacturing capabilities, and low production costs.

Engineering of the new cruiser was performed in-house, lowering development costs. Production and

assembly takes place at two plants that had extra capacity, and the firm reaches break-even at 4,000

motorcycles per year (3 percent of the current cruiser market). Victory motorcycles sales more than tripled

in 1999 and grew by 50 percent in year 2000.Polaris anticipates becoming a significant player in the motorcycle market, developing a line of touring,

cruiser, and performance bikes with projected sales of $500 million by 2003 and expanded capacity of

40,000–50,000 per year.19 Polaris is known as an efficient, low-cost manufacturer.

■ TRIUMPH ■

Triumph,20 a British manufacturer, began motorcycle production in 1902. By 1909 the company was

producing 3,000 bikes per year and by the 1950s became one of the world’s most renowned motorcycle

brands (in part thanks to its appearance as Marlon Brando’s bike in the classic movie The Wild One).

However, by the 1970s the company faced financial problems and was forced to liquidate in 1983.

Primarily due to the efforts of its current head, John Bloor, the company revived in the early 1990s and

began development and production of new models. In 1996 the company surpassed the 50,000 bikes

production level (touring, cruisers) and unveiled plans to introduce a new performance motorcycle.“Triumph is the greatest name, and only survivor, of the once internationally dominant British

motorcycle industry.” Triumph is about glamour and rebellion, about speed and performance. The

company’s most popular model (25 percent of production capacity) is a cruiser, Thunderbird.

Thunderbird’s styling is similar to that of the 1960s Triumph model with the same name and the bike is

positioned to capture a part of the lucrative heavyweight cruiser market.

■ BMW ■

Even though motorcycles made only about 2.6 percent of total BMW sales income in 2000,21 the company

is committed to supporting and developing its line of bikes. With annual 2000 sales of 74,614 bikes, the

company exported 69 percent of its motorcycles abroad, comparing to the 66 percent in 1999.

BMW Motorcycles celebrated its 75th anniversary in 1998 and its bikes have led the way to technicalinnovation, pioneering such things as advanced suspension systems, anti-lock brakes, and fuel injection.22

Because of these technological innovations, BMW motorcycles have lower operating costs than the

competition. In a comparison of Kawasaki and BMW touring bikes, the California Police Department

estimated an operating cost of 1.9 cents per mile for the Kawasaki model tested, compared to an operating

cost of 1.7 cents per mile for the BMW model tested.23 The company has always been associated with a

high technical and quality standard, and its motorcycles are also known for reliability, safety, and comfort.

BMW offers a full line of performance, touring, and cruiser bikes. Recently it has introduced its new

concept model C1, which is designed to unite the mobility of the bike with safety of the car. The first

cruiser, BMW R1200C, was introduced in 1997 as part of the latest James Bond movie, Tomorrow Never

Dies,24 and became BMW’s best-selling bike in its first model year.25 R1200C includes the latest

technological innovations and safety features; however, it departs from the retro look favored by other

producers. In creating the bike, BMW assumed that in the future “high performance cruisers will replace

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retro-look customs with a sportier look and feel.”26 The R1200C was the first in this category. At a price

of $14,500, the cruiser is priced about $1,000 below the range of comparable Harley models providing

superior features such as anti-lock disk brakes, superior acceleration technology, and liquid-cooled

engine.27 Half of R1200C buyers are those who already own a Harley, and the other half are those who

own a Japanese motorcycle.

BMW introduced the new luxury touring model K1200LT in 1999. This model also represents the

“new” design concept of the modern look. Comparing to the competing models it offers superior comfort

and user friendliness.

BMW motorcycles are positioned as a source of “undeniable pleasure and excitement of riding”. The

underlying idea is that BMW should provide the functionality of the bike with improved comfort and

reliability features. In order to achieve this goal the company leverages the innovative car-building

technologies of its 70,000 sq. feet R&D campus in Munich. As a result, BMW motorbikes have anti-block

braking system (ABS), close-to-car comfort seats as well as enhanced cooling and battery systems to

increase reliability of the engine during various riding conditions. Most of the BMW motorcycles are

manufactured in the single plant located in the vicinity of Berlin. During the last year the plant was

expanded to 2,400 workers (additional 320) to achieve the capacity of 400 items per day. A new C1 model

is currently being built in the Carrozzeria Bertone factory.

NOTES

1. Boston Consulting Group, “Strategy alternatives for the British motorcycle industry,” Her Majesty’s

Stationery Office, London, July 30, 1975; quoted in Richard T. Pascale, “Perspectives on strategy:

the real story behind Honda’s success,” California Management Review, March 23 (Spring 1984),

47–72.

2. Peter Reid, “How Harley beat back the Japanese,” Fortune, September 25, 1989.

3. Gary Strauss, “Born to be bikers,” USA Today, November 5, 1997.

4. Marc Ballon, “Born to be wild,” Inc, November 1997, p. 42.

5. Harley-Davidson, Inc. Annual Report, 2000.

6. http://www.harley-davidson.com/experience/family/hog.

7. Motorcycle magazine, 1998.8. Marco R. della Cava, “Motorcycle maker caters to the continent,” USA Today, April 22, 1998.

9. Ibid.

10. Kevin R. Fitzgerald, “Harley’s supplier council helps deliver full value,” Purchasing , September 5,

1996.

11. Ann Millen Porter, “One focus, one supply base,” Purchasing , June 5, 1997.

12. Kevin R. Fitzgerald, “Harley’s supplier council helps deliver full value,” Purchasing , September 5,

1996.

13. Stephen Roth, “Harley’s goal: unify union and management,” Kansas City Business Journal , May 16,

1997.

14. Clyde Fessler (H-D VP for Business Development), “Rotating leadership at Harley-Davidson: from

hierarchy to interdependence,” Strategy & Leadership, July 17, 1997.

15. Ibid.

16. “Excelsior Henderson selects J. D. Edwards to provide smooth ride to growth,” Business Wire, March

24, 1998.17. Macario Juarez, “City business to help debut American Harley rival,” Albuquerque Tribune, December

18, 1997.

18. Paul Klebnikov, “Clear the roads, here comes Victory,” Forbes, October 20, 1997.

19. Strauss, “Born to be bikers.”

20. http://www.georgian.net/rally/triumph.

21. http://www.bmw.com.

22. Richard Truett, “Motorcycling has long run in the BMW family,” The Orlando Sentinel , March 5,

1998.

23. John O’Dell, “Giving chase: BMW wants to break Kawasaki’s and Harley’s hold on the police

market,” Los Angeles Times, September 21, 1997.

24. “BMW in control with Bond bike cruiser,” The San Diego Union Tribune, March 14, 1998.

25. Truett, “Motorcycling has long run in the BMW family.”

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26. Adrian Blake, “Two motorcycle giants celebrate anniversaries,” The Toronto Star , April 11, 1998.

27. Comparison of dealer suggested retail prices in the table 8.4.

28. Honda (B) Harvard Business School.

29. Honda (A) Harvard Business School.

30. http://www.honda.com; http://www.bmw.com; and table 8.1.

31. American Honda Reports Record Motorcycle Sales For 2000, February 2, 2001

(www.americanmotor.com).

32. Honda’s Q2 2000 Motorcycle Sales Up-Overall Net Income Down November 16, 2000


33. Blake, “Two motorcycle giants.”

34. American Honda Reports Record Motorcycle Sales For 2000, February 2, 2001


35. Ibid.

36. Honda (A) Harvard Business School.

37. Ibid.

38. Valerie Morris, “Ducati’s market challenge,” Business Unusual , CNN, April 17, 1998.

39. http://www.bigdogmotorcycles.com.

Copyright © 2004 Robert M. Grant.

Table 8.1 Annual production of motorcycles by Harley-Davidson

Year Production Year Production

1901 3 1990 62,500

1903 150 1992 76,500

1913 12,904 1994 95,811

1920 28,189 1995 105,104

1933 3,700 1996 118,771

1936 9,812 1997 132,285

1948 31,163 1998 150,8181953 14,050 1999 177,187

1966 36,310 2000 204,592

1975 75,403 2001 234,500

1981 41,586 2002 263,700

1986 36,700 2003 291,147

Source: www.harley-davidson.com.

Table 8.2 Harley-Davidson’s motorcycle registrations (1993–2003)*

1995 1996 1997 1998 1999 2000 2002 2003

United States (total) 163,100 178,500 205,400 246,200 297,800 363,400 442,300 461,200

Harley-Davidson 77,800 86,800 101,200 119,400 146,000 168,300 209,900 228,400

Market share (651+cc) 47.7% 48.6% 49.3% 48.5% 49.0% 46.3% 47.5% 49.5%

Europe (total) 207,200 224,700 250,300 270,200 306,700 293,400 331,800 323,100

Harley-Davidson 15,400 15,300 16,100 17,300 19,900 21,800 23,500 26,300

Market share (651+cc) 7.4% 6.8% 6.4% 6.4% 6.5% 7.4% 7.1% 8.1%

Japan/ Australia (total) 39,400 37,417 58,880 69,200 63,100 62,700 63,900 58,900

Harley-Davidson 7,900 8,400 10,100 10,800 12,300 12,900 13,600 15,200

Market share (651+cc) 20.1% 22.4% 17.2% 15.6% 19.6% 20.5% 21.2% 25.8%

*Includes Buell.

Source: www.harley-davidson.com.

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Table 8.3 Market shares in heavyweight motorcycles (651cc+), 2000 and 2003 (%)

North America Europe Japan/Australia

2003 2000 2003 2000 2003 2000

Harley-Davidson 48.1 46.3 8.1 7.4 25.8 20.5

Honda 18.6 19.1 16.7 21.8 17.8 21.8

Kawasaki 7.1 9.1 10.0 9.4 13.8 18.9

Suzuki 10.3 9.5 15.5 14.3 10.7 10.4

Yamaha 9.1 9.0 16.0 17.3 11.4 17.0

BMW 2.8 3.2 15.3 13.0 6.2 4.0

Ducati 1.9 6.0 6.3 6.6 4.6

Triumph — 3.7 4.2 —

Other 4.0 1.9 8.7 6.3 7.7 4.2

Source: Harley-Davidson Annual Report , 2000, 2003.

Table 8.4 Heavyweight motorcycles: price comparisons, 2004

Manufacturer and model Engine Recommended

retail price ($)

Harley-Davidson

XL 800 Sportster V-twin, air-cooled, 883cc 6,495

Fat Boy FLSTF V-twin, air-cooled, 1,540cc 16,245

V Rod VRSCB V-twin, liquidr-cooled, 69 cu. in 17,295

Heritage Softail Classic V-twin, air/c, 1,450cc 17,580

H-D Ultra Classic Electra GlideV-twin 1,450cc, injection (2-

tone) 20,405

Honda

Shadow Spirit V-twin, OHC, 705cc 5,999VTX1300 V twin, liquid cooled, 1300cc 9,199

VTX1800 V twin, liquid cooled, 1800cc 12,599

Suzuki

Marauder 800 V-twin, liquid-cooled, OHC, 805cc 5,999

Intruder 1400 V-twin, air-cooled, 1,462cc 8,399

Marauder 1800 V-twin, liquid-cooled, OHC, 1800cc 10,999

Kawasaki

Vulcan 800 V-twin, 8-valve, OHC 6,499

Vulcan Classic V-twin, air-cooled, 1,470cc 8,999

Yamaha

V Star Classic 1100 V-twin, OHC, 1100cc 8,349

Road Star Warrior V-twin, OHC air cooled, 1670cc 12,099

BMW

Liquid-cooled, double OHC, injection 8,100

R1200 Classic 1,170cc, horizontal twin, air-cooled 14,650

BMW R1200 Tourer 1,170cc, horizontal twin air-cooled 16,250

Polaris

Victory Classic Cruiser V-twin, 4-valve OHC, 1,507cc 13,699

Source: Company websoted

Table 8.5 Harley-Davidson shipments 1997–2003 (thousands of motorcycles)

1997 1998 1999 2000 2001 2002 2003

Motorcycle shipments

United States (,000s) 96.3 110.,9 135.6 158.9 188.3 215.7 242.9

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Export (,000s) 36.1 39.9 41.6 45.8 46.2 48.0 48.2

Motorcycle product mix

Sportster 23.8% 22.5% 23.6% 22.6% 21.7% 19.4% 19.7%

Custom 53.5% 51.3% 49.6% 49.3% 49.8% 46.9% 46.7%

Touring 22.8% 26.2% 26.8% 28.1% 27.9% 26.8% 28.4%

VRSL -- -- -- -- 0.7% 6.8% 5.3%

Buell motorcycle shipments

Worldwide (,000s) 3.1 5.5 6.8 6.9 9.9 10.9 10.0

Source: Harley-Davidson Annual ReportsTable 8.6 Harley-Davidson’s sales of parts, accessories, and

general merchandise, 1990–2000 ($ million)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Parts and 103.6 127.8 162.0 192.1 210.2 241.9 297.1 362.6 447.9 509.6 629.2 712.8

accessories

General 52.1 71.2 94.3 100.2 90.7 95.1 114.5 132.7 151.4 163.9 231.5 211.4

merchandise

Source: Harley-Davidson financial s tatements (www.harley-davidson.com).

Table 8.7 Harley-Davidson’s main facilities, 2004

Location Function Square feet

Wisconsin Milwaukee

Corporate headquarters 515,000

Milwaukee sales, R&D parts/accessories

Wauwatosa Product Development Center 397,000Wauwatosa

Engine manufacturing 422,000

Menomonee Falls Engine/transmission

Production 479,000

Franklin Parts/Accessories

Distribution Center 250,000

Tomahawk Fiberglass parts production/painting

Pennsylvania York Final

assembly plant, parts

and painting 1,331,000

Missouri

Kansas City Manufacturing, painting 330,000

Brazil

Manaus Manufacturing 30,000

Source: Harley-Davidson 10K l Report, 2003

Table 8.A1 Harley-Davidson: Selected items from financial statements, 1994–2000 ($ million, except per-share

data)

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Income statement

Net sales 1,159 1,350 1,531 1,762 2,064 2,453 2,906 3,407 4,091 4,624

Gross profit 358 411 490 586 691 836 991 1,153 1,418 1,666

R&D 28.1 30.3 37.3 53.3 58.7 70.3 75.8

Selling, admin., 204 234 269 329 377 448 513.0 552 639 684

engineering

Operating income 153.6 180.8 228.4 270.0 333.6 415.8 515.0 663 883 1,149

Of which:

Financial services — 3.6 7.8 12.4 20.0 28.0 37.2 61 104 168

Interest income 1.7 0.1 3.3 7.9 3.8 8.0 17.6 17 17 23

Other 1.2 (4.9) (4.1) (1.6) (1.2) (3.1) 16.0 (7) (13) (6)

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income/(expense)

Income before taxes 156.4 176.0 227.6 276.3 336.2 420.8 548.6 673 886 1,166

Provision for 60.2 64.9 84.2 102.2 122.7 153.6 n.a. 236 306 405

income taxes

Net Income 104 112 166 174 213 267 348 438 580 761

Earnings per share $0.62 $0.73 $0.94 $1.13 $1.38 $1.73 $1.13 $1.41 $1.90 $2.50

(diluted)

Balance sheet s

Cash and cash 59 31 142 147 165 183 419 n.a. 281 812

equivalents

Finance receivable ,— 170 184 249 319 355 581 n.a. 856 1,002

(current portion) net

Accounts 143 134 141 103 113 102 98 n.a. 109 112

receivable, net

Inventories 173.4 84.4 101.4 117.5 155.6 168.6 191.9 n.a. 218 208

Total current assets 406 337 613 704 845 949 1,297 n.a. 2,067 2,729Property, plant, 263 285 409 529 628 682 — n.a. 1,033 1,046

equipment

Total assets 739 1,001 1,230 1,599 1,920 2,112 2,436 n.a. 3,861 4,928

Liabilities &

stockholder’s equity

Current liabilities

Current portion of 18 3 9 91 147 181 89 n.a. 383 324

debt

Accounts payable 64 103 101 106 123 138 — n.a. 227 224

Total current 216 233 251 362 468 518 498 n.a. 990 956

liabilities

Non-current liabilities

Debt 0 164 258 280 280 280 355 n.a. 380 670

Other long-term 90 109 70 62 67 65 97 n.a. 123 86liabilities

Post-retirement n.a. n.a. 66 68 72 76 81 n.a. 105 127

benefits

Total stockholders’ 433 495 663 827 1,030 1,161 1,406 n.a. 2,233 2,958

equity

Total liabilities & 739 1,001 1,230 1,599 1,920 2,112 2,436 n.a. 3,861 4,923

stockholders’

equity

Cash flows

Operating activities 81 169 228 310 318 416 565 750 776 936

Capital expenditures (95) (113) (179) (186) (183) (166 (204) (290) (324) (227)

Total investing (97) (188) (214) (406) (340) (300) (171.0) (764) (1,014) (485)

activities

Financing activities (3) (10) 96 102 40 (98) (158) 34 80 81 Net increase in cash (18) (26) (111) 5 (18) 18 236 20 (158) 532

Source: Harley-Davidson financial statements (www.harley-davidson.com).

Table 8.A2 Comparative financial data for Harley-Davidson, Honda and BMW ($ million, except per-

share data)

HONDA YAMAHA MOTOR BMW HARLEY-DAVIDSON

8/2/2019 08Harley


2003 2002 2003 2002 2003 2002 2003 2002

Revenue 67,479 55,253 8,454 7,138 52,122 44,316 4,624 4,091

Gross profit margin 34.9% 34.2% 28.3% 25.9% 22.7% 25.4% 40.3% 39.0%

SGA expense 15,845 12,660 1,825 1,571 7,634 7,716 774 725

Operating income 5,837 4,798 565 281 4,209 3,541 892 693

Net income after tax 3,614 2,722 216 61 2,444 2,117 761 580

Net margin 5.4% 4.9% 2.5% 1.0% 4.7% 4.8% 16.5% 14.2%

Operating

income/total assets

9.0% 9.2% 9.7% 10.5% 5.5% 8.2% 18.1% 17.9%

Return on equity 16.2% 14.1% 13.3% 5.8% 12.1% 14.6% 25.7% 26.0%

Operating cash flow 5,825 5,628 703 591 9,880 7,599 936 780

Cash flow from

investing activities

(9,088) (6,653) (329) (352) (14,097) (10,182) (485) (1,018)

R&D expenditure 3,698 n.a. 486 n.a. 2,694 n.a. 150 n.a.

Advertising

expenditure

1,987 n.a. n.a. n.a. 51 n.a.

Employees 126,900 n.a. 32,066 104,342 n.a. 8,800 n.a.

Source: www.hoovers.com

08Harley

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